Stocks Log 4-Day Rally, Nasdaq Posts Best Close Since October 2000

Stocks logged their fourth-straight session in positive territory Tuesday, with the S&P 500 about 1 percent below its all-time closing high of 1,669.16 and the Nasdaq posting its best close since October 2000, lifted by a positive start to second-quarter earnings season.

"At the pace we are going at, the S&P could be challenging the May high at 1,687 by the end of the week," wrote Elliot Spar, market strategist at Stifel Nicolaus. "The bulls will surely be cheerleading for that but those that live in the real world of owning a lot of the market's merchandise that is still under water will not be in a celebratory mood."

"The good news is that earnings expectations have been ratcheted down over the past few weeks," said Todd Salamone, director of research at Schaeffer's Investment Research. "Lowered expectations are good because that's a lower hurdle to jump over…and a lot depends on the outlook."

Dow component Alcoa posted earnings and revenue that topped Wall Street expectations, adding it remains optimistic that global demand for aluminum will grow 7 percent this year. Shares of the aluminum maker initially opened higher, but quickly reversed their gains. Alcoa unofficially marks the start to each earnings season.

Meanwhile, Intuitive Surgical tumbled sharply to lead the S&P 500 laggards after the medical devices maker said it expects second-quarter revenue below analysts' expectations. In addition, at least three brokerages slashed their ratings and price targets on the company. Other clinical lab services companies and medical equipment manufacturers were also sharply lower including Quest Diagnostics, Varian Medical Systems and Laboratory Corp.

As of Friday, 122 S&P 500 companies had made earnings pre-announcements, and the ratio of negative-to-positive ones was 6.5-to-one, according to Reuters. That is the biggest percent of negative readings since 2001.

U.S. regulators proposed a plan that would force the country's largest financials to hold twice as much equity capital than required by the global Basel III bank capital standards.The eight largest banks would be subject to a leverage ratio of 6 percent. Bank stocks initially turned lower following the news, but regained their footing along with the broader market.

Homebuilders including DR Horton, Lennar and KBHome were up sharply following news that foreclosures in May were down 27 percent from a year ago.

Kroger advanced after the country's largest supermarket chain said it will acquire grocery chain Harris Teeter for $2.5 billion in cash.

Barnes & Noble announced its CEO William Lynch has resigned effective immediately, but did not provide a specific reason for his departure. The company had originally hired him in to improve the struggling Nook business.

IBM declined to lead the Dow laggards after Goldman Sachs cut its rating on the tech giant to "neutral" from "buy."

On the economic front, small business optimism slipped in June from its one-year high amid uncertainty over the economic recovery, according to the National Federation of Independent Business.

Meanwhile, the IMF shaved its 2013 global growth forecast to 3.1 percent, citing slowdown in emerging economies and ongoing worries in Europe. It also lowered its outlook for 2014 to 3.8 percent, down from a 4 percent expansion.

Treasury prices were little changed after the government auctioned $32 billion in 3-year notes at a high yield of 0.719. The bid-to-cover ratio, an indicator of demand, was 3.35, versus the recent average of 3.50. The Treasury will sell $21 billion of 10-year supply on Wednesday, followed by a $13 billion auction of 30-year bonds on Thursday.

In Asia, investors largely ignored unexpectedly high consumer inflation numbers from China, despite fears that strong price rises will rule out the prospect of monetary easing by the Chinese central bank.

"CPI [consumer price inflation] data is not a market mover. Short-term focus is still on shadow banking. Investors are wondering if China's banking system can sustain a decline in GDP [gross domestic product] growth," said Stephen Sheung, head of investment strategy at SHK Private.

Meanwhile, Japan's benchmark index closed just shy of a new six-week high, as the dollar-yen trade breached the 101-yen handle.